Measured in local currency terms, Australia's AUD10.07bn (US$7.74bn) pharmaceutical market is forecast to post a compound annual growth rate (CAGR) of 3.28% over the next 10 years (down from a rate of 4.5% forecast for the 2009-2014 period). The main drivers are an ageing population, rising birth and immigration rates, a growing economy, more chronic diseases and an increasingly sedentary workforce. However, the government has been attempting to slow inflation in healthcare spending by pressuring drug prices. In May 2010, the Australian government signed a four-year memorandum of understanding (MOU) with Medicines Australia, which represents drugmakers in the country. Under the terms of the agreement, Medicines Australia has agreed drug price cuts worth AUD2bn (US$1.76bn) for the government and AUD300mn (US$263.35mn) for consumers over a four-year period. According to BMI's calculations, the deal will help the government control public healthcare expenditure, which we forecast to hit US$68.7bn in 2010. Meanwhile, BMI expects the popularity of generic drugs in Australia to increase following the publication of a study conducted by health economists from the University of Sydney. The research shows that the country could save nearly AUD10bn (US$9.1bn) over the next decade if the uptake of generic statins ' which are used in the treatment of high cholesterol ' is encouraged. Reforms to Australia's healthcare system, which BMI expects to succeed, will also accelerate the uptake of generic drugs following patent expiry of the originator product. Despite attempts by the pharmaceutical industry to temper the growth of the generics market, the latter is expected to record a local currency CAGR of 9.05% over 2009-2014. While BMI expects this growth rate to ease to 6.66% over 2009-2019, this expansion remains considerably higher than the 2.87% CAGR of the overall market in the same period. Although the government is prohibited from favouring the prescription of generics over the next four years under the Medicines Australia agreement, price reductions in generic drugs secured by the same agreement should help boost demand for these products. In May 2010, the government added AUD2.2bn (US$1.9bn) to healthcare spending over the next four years as part of the 2010-2011 federal budget. About AUD772mn (US$671.3mn) of the total amount has been allocated to improving access to primary healthcare and GPs, while AUD523mn (US$451.8mn) is allocated to nurse training and support, AUD467mn (US$406.1mn) to revamping the healthcare and hospital system (including e-health) and AUD400mn (US$347.8mn) to increasing efficiency and performance. However, while the value of the sector will increase at a local currency CAGR of 5.86% over 2009-2014, public sector health expenditure will remain steady, while total healthcare spending as a percentage of GDP will increase only modestly. This is partly due to a modest growth in drugs expenditure going forward, on the back of increasing government eagerness to reduce healthcare costs through lower drugs subsidies.